Republic of Belarus
Request for Stand-By Arrangement: Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for the Republic of Belarus.

Belarus’ economic growth has been impressive in the last few years. Belarus’ economic program is designed to facilitate adjustment to external shocks and reduce vulnerabilities. It includes a number of structural reforms on issues that are critical to the mitigation of vulnerabilities. On structural policies, the program places economic liberalization as a priority, particularly price liberalization. The program also envisages efforts to enhance the role of the private sector by reducing the distortion of taxes and the regulatory burden on private companies, and continuing privatization efforts.

Abstract

Belarus’ economic growth has been impressive in the last few years. Belarus’ economic program is designed to facilitate adjustment to external shocks and reduce vulnerabilities. It includes a number of structural reforms on issues that are critical to the mitigation of vulnerabilities. On structural policies, the program places economic liberalization as a priority, particularly price liberalization. The program also envisages efforts to enhance the role of the private sector by reducing the distortion of taxes and the regulatory burden on private companies, and continuing privatization efforts.

I. Introduction

1. Despite lagging structural reforms, Belarus’ growth has been impressive (Table 1; Figure 1). Belarus’ economy, characterized by government control over a wide range of activities, receives aggregate EBRD transition scores that are among the lowest. Nonetheless, growth has averaged close to 9 percent since 2002, with spare capacity and high investment underpinning production growth, and a combination of sharp export price gains, strong growth in trading partners, and large energy subsidies from Russia supporting demand.

Figure 1.
Figure 1.
Figure 1.
Figure 1.
Figure 1.
Figure 1.
Figure 1.

Belarus: Growth, 2002–08

Citation: IMF Staff Country Reports 2009, 109; 10.5089/9781451805307.002.A001

Sources: UNCTAD, World Investment Report, 2008; EBRD, Transition Report, 2008; IMF, World Economic Outlook; Belarus authorities; Boomberg; and IMF staff estimates.1/ Transition indicators range from 1 to 4+, with 1 representing little or no change from a rigid centrally planned economy and 4+ representing the standards of an industrialized market economy. Since the turn of the decade, progress in liberalizing prices has stalled in Belarus in comparison with other countries of the region.2/ The Inward FDI Performance Index ranks countries by the FDI they receive relative to their economic size. It is the ratio of a country´s share in global FDI inflows to its share in global GDP.
Table 1.

Belarus: Selected Economic Indicators, 2005–10 1/

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Sources: Belarusian authorities; and Fund staff estimates.

Assumes exchange rate re-peg to a basket of currencies within a horizontal band, the upfront adoption of policies to reduce domestic demand.

Contribution to growth.

Gross consolidated debt of the public sector (general government, central bank, and guarantees extended to non-financial public enterprises).

Macroeconomic Developments, 2001–08

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Sources: Belarus authorities; and IMF staff calculations.

2. However, recently the economy has been overheating (Figure 2). Since bottoming in 2006 at under 7 percent, inflation has been rising in line with developments in other countries in the region. Despite a tightening of price controls in mid-2007, it currently stands at about 16 percent. The rise in inflation is partly the result of global food and energy shocks, but indicators of domestic demand, high credit growth, and output growth above trend point to an overheated economy.

Figure 2.
Figure 2.
Figure 2.
Figure 2.
Figure 2.
Figure 2.
Figure 2.

Belarus: Inflation, 2006–08

(Year-on-year percent change, unless otherwise indicated)

Citation: IMF Staff Country Reports 2009, 109; 10.5089/9781451805307.002.A001

Sources: Belarus authorities; IMF, World Economic Outlook; and IMF staff calculations.

3. The rise in domestic demand has largely been driven by an expansion of quasi-fiscal activity. Directed lending through state banks has surged since late 2007, with the flow amounting to 3½ percent of GDP through end-August 2008. Notwithstanding the fiscal activity off-budget in state banks and enterprises, the public balance sheet remains strong: the many public enterprises do have substantial potential value while public debt is very low, due to the interaction of the boom with budgetary restraint (Table 2; Figure 3).

Figure 3.
Figure 3.
Figure 3.
Figure 3.
Figure 3.
Figure 3.
Figure 3.

Belarus: Fiscal Developments, 2004–2008

(Percent of GDP, unless otherwise indicated)

Citation: IMF Staff Country Reports 2009, 109; 10.5089/9781451805307.002.A001

Sources: Belarus authorities; and IMF staff calculations and projections.1/ Average of general government revenue and expenditure.
Table 2.

Belarus: Fiscal Indicators and Projections 1/, 2007–10

(In billion of Belarusian Rubles, unless otherwise indicated)

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Source: Ministry of Finance, SPF, and Fund staff estimates.

Data for 2008–09 under the budget columns reflect the authorites’ approved budgets. The 2009 will be revised to reflect the authorities’ decision to deliver a balance budget for 2009. The 2009 program assumes 5% base wage increases in November 08 and May 09 (the latter if conditions perm

Includes changes in expenditure arrears.

The actual deficits include all the closing expenditure for the year carried out in January of the following year and correspond to the authorities fiscal year reports. The deficit includes January closing expenditure in the year they were actually paid.

4. During the boom, external vulnerabilities were not addressed and financial sector vulnerabilities built up (Table 3):

Table 3.

Belarus: Indicators of External Vulnerability, 2004–08

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Sources: Belarus authorities; and IMF staff estimates and projections

Includes loans, currency and deposits and other flows.

Interest plus medium- and long-term debt repayments in percent of exports of goods and services.

Deflated by the CPI.

  • In the external sector (Table 4; Figure 4), international reserves remained low: at end-2007, they amounted to 1½ months of imports and 57 percent of short-term debt. Some Russian energy subsidies were unwound (Russia doubled the price of natural gas in 2007, and imposed part of its regular export tax on oil exports to Belarus), but the planned increase in the gas price by Russia will continue to impact Belarus through 2011. Exports to western markets remained concentrated on oil products, while higher value-added exports were mostly to the CIS (with 55 percent of non-energy exports destined for Russia).

Figure 4.
Figure 4.
Figure 4.
Figure 4.
Figure 4.
Figure 4.
Figure 4.

Belarus: External Vulnerabilities, 2006–08

Citation: IMF Staff Country Reports 2009, 109; 10.5089/9781451805307.002.A001

Sources: Belarus authorities; and IMF staff calculations and projections.1/ Calculated by multiplying the volume of imported crude oil by the diffrerence between the price of Urals brand and the Belarus import price.2/ Calculated by multiplying the volume of imported natural gas by the difference between Belarus import price and Germany and Ukraine border prices, respectively.
Table 4.

Belarus: Balance of Payments, 2007–13 1/

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Source: Belarus authorities and Fund staff estimations

Assumes an upfront devaluation and the adoption of expenditure-reducing measures.